Use the data below to answer the following problems...

• Test Prep
• 2

This preview shows page 1 - 2 out of 2 pages.

FIN 2200 Lab Lab Chapter 10, 11 1. Use the data below to answer the following problems regarding portfolios: Security Expected Return Standard Deviation 1 0.25 0.36 2 0.15 0.14 3 0.05 0.00 a) Assume ρ 12 = -0.40 and your portfolio consists of security 1 and of security 2. i) Determine the expected return of your portfolio if your portfolio consists of 60% security 1 and 40% security 2. (Lab5.1.a.i.mp4) ii) Determine the expected variance of your portfolio if your portfolio consists of 60% security 1 and 40% security 2. (Lab5.1.a.ii.mp4) iii) Determine, using calculus or a formula, portfolio weights that would give the minimum standard deviation portfolio. [Hint for calculus users: Establish a portfolio variance equation in X 1 (or X 2 ) only; take its derivative with respect to X 1 (or X 2 ); set the derivative equal to zero and solve for X 1 (or X 2 ); then solve for X 2 (or X 1 ). (Lab5.1.a.iii.mp4) iv) Determine the expected return and the standard deviation of the minimum variance portfolio in iii) above. (Lab5.1.a.iv.mp4)
• • • 